Core Viewpoint - The GBP/USD exchange rate is experiencing narrow fluctuations, currently trading around 1.3469, with market participants awaiting key U.S. inflation data and the Federal Reserve's meeting minutes for further direction [1]. Group 1: Central Bank Policy Divergence - The Bank of England is facing a dilemma between persistent inflation and economic weakness, leading to constrained policy adjustments. In December 2025, it slightly lowered rates by 25 basis points to 3.75% with a 5-4 vote, indicating internal divisions on inflation risks [2]. - Despite a decline in the UK inflation rate to 3.2% in November, it remains above the 2% target, and the Bank of England anticipates stagnation in economic growth for Q4 2025, further limiting recovery potential [2]. - The Federal Reserve's policy uncertainty is providing temporary support for the GBP. Cumulatively, the Fed has lowered rates by 75 basis points to a range of 3.5%-3.75% in 2025, with expectations for further cuts in 2026, which diminishes the medium-term appeal of the USD [2]. Group 2: Economic Fundamentals and Market Sentiment - The UK economy is projected to grow at only 1%-1.5% in 2026, significantly lower than the U.S. Additionally, the UK government faces an estimated budget deficit of approximately £30 billion, impacting market expectations [3]. - The labor market slowdown and structural unemployment are further constraining consumption and investment, while persistent inflation limits the Bank of England's ability to ease monetary policy, creating an unfavorable "weak growth + high inflation" scenario [3]. - Market sentiment shows the GBP/USD maintaining a volatile pattern at the start of the year, with technical rebounds observed. Some institutions believe Fed rate cut expectations may support the exchange rate testing resistance at 1.3550, while others warn that economic weaknesses and fiscal risks will limit upward potential, forecasting a balanced level around 1.31 [3]. Group 3: Technical Analysis and Key Data Guidance - Technically, the GBP/USD is finding support in the 1.3450-1.3480 range, showing signs of a technical recovery. The short-term moving average's downward slope is flattening, indicating reduced downward momentum [4]. - Key support levels are identified at 1.3450 and 1.3400, while resistance is noted at 1.3550, with potential further testing of the 1.3600-1.3650 range upon a breakout [4]. - The short-term trajectory of GBP/USD is highly dependent on key data and events, including the U.S. December NFIB Small Business Confidence Index and the December CPI and Core CPI, which will influence Fed policy expectations [4].